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Shell Pakistan Limited

Quarterly and Six Monthly Report June

11

Company Information
Board of Directors Chairman Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sarim Sheikh Rafi H. Basheer Farrokh K. Captain Chong Keng Cheen Gary Fisher Imran R. Ibrahim Nasser N.S. Jaffer Zaffar A. Khan Michael Noll Omar Y. Sheikh Badaruddin F. Vellani

Chief Executive Managing Director & Chief Executive Mr. Sarim Sheikh Audit Committee Chairman Mr. Badaruddin F. Vellani Mr. Michael Noll Mr. Imran R. Ibrahim Leadership Team Managing Director & Chief Executive Country Coordinator General Manager Lubricants General Manager Retail General Manager External Affairs General Manager Human Resources General Manager Supply & Distribution General Manager Business Strategy Company Secretary & Head of Legal Chief Financial Officer Business Manager Commercial Fuels Mr. Sarim Sheikh Ms. Seema Adil Mr. Omar Y. Sheikh Mr. Gary Fisher Mr. Abid S. Ibrahim Mr. Leon Menezes Mr. Haroon Rashid Mr. Omar Motiwalla Mr. Tariq Saeed Mr. Rafi H. Basheer Mr. Anwaar Shami Company Secretary Mr. Tariq Saeed Registered Office Shell House, 6, Ch. Khaliquzzaman Road, Karachi-75530 Auditors A. F. Ferguson & Co. Legal Advisors Vellani & Vellani Advocates & Solicitors Registrar & Share Registration Office FAMCO Associates (Pvt) Ltd., 1st Floor, State Life Building 1-A, I. I. Chundrigar Road, Karachi-74000

01

Shell Pakistan Limited

Chairmans Review
For the half year ended June 30, 2011

On behalf of the Board of Directors of Shell Pakistan Limited, I am pleased to share the results of the Company for the half year ended June 30, 2011. For this period, our Net Revenues were Rs 116,318 million with Gross Profits of Rs 7,559 million, delivering Profit before Tax of Rs 2,671 million. During this half year the Company earned a profit after tax of Rs.1,407 million as against a net profit of Rs. 720 million recorded in the same period last year. This increase is primarily due to favorable movements in the international oil price during the period with support from improved performance in the export business of the Company and reduction of operating costs. However, your Company continues to be impacted by very low regulated margins set by the Government for motor gasoline and diesel and high financing costs due to significant delay in recovery of refunds of indirect taxes and subsidy claims from the Government. Regulated margins for petrol and diesel in Pakistan remain one of the lowest in the region, having been further reduced by the Government in late 2010, at a time of both rising oil prices and increasing cost of doing business. In a high oil price and inflationary environment that was prevalent during this half-year period, the level of margins allowed by the Government do not provide appropriate returns to cover the cost of operations and the high cost of financing for the required investments in costlier stock and higher and delayed Government receivables. Government receivables are now approaching in excess of Rs 13,000 million mainly related to refund of indirect taxes and fuel subsidies. This is causing a continually high financing charge on the Company. Since the inception of these receivables, the delays in settlement have already cost the Company over Rs. 3 billion in interest costs. Your management is vigorously following up with concerned Government authorities for the early settlement of these receivables. We continue to emphasise that it is imperative for the Government to urgently address the unfavorable impacts of low margins in Oil Marketing Company's margins and delay in settlement of Government receivables. The recent ECC decision on margin increase is a positive step in this direction and we are hopeful that this will be fully and immediately implemented. Also the delays in clearing receivables due from the Government needs to be addressed on an urgent basis to create an environment conducive to business continuity and growth in this key sector of the economy. Due to these challenges and its impact on the operating position, your Board has not recommended an interim dividend for the current period and will only consider a final dividend at the year end. We thank our shareholders, customers and staff for their sustained support and trusting Shell as their brand of first choice.

August 17, 2011


Shell Pakistan Limited

Sarim Sheikh Chairman & Chief Executive

02

Shell Pakistan Limited

Quarterly and Six Monthly Report June

11

Independent Auditors' Report to the Members on Review of Condensed Interim Financial Information
Introduction We have reviewed the accompanying condensed interim balance sheet of Shell Pakistan Limited as at June 30, 2011 and the related condensed interim statement of comprehensive income, condensed interim statement of cash flows and condensed interim statement of changes in equity together with the notes forming part thereof (here-in-after referred to as the condensed interim financial information), for the half year then ended. Management is responsible for the preparation and presentation of this condensed interim financial information in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Our responsibility is to express a conclusion on this condensed interim financial information based on our review. The figures of the condensed interim statement of comprehensive income for the quarters ended June 30, 2011 and 2010 have not been reviewed, as we are required to review only the cumulative figures for the half year ended June 30, 2011. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim financial information as of and for the half year ended June 30, 2011 is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Without qualifying our review report, we draw attention to: Note 7 to the interim financial information. As explained in note, the Company has recognized deferred tax asset on unutilized tax losses based on projections of future taxable profits of the Company. The realizability of this asset is dependant on the underlying assumptions and business drivers materializing as projected. Notes 9.1, 9.2 and 9.3 to the interim financial information. The Company considers the amount of Rs. 2,215,811 thousand, Rs. 295,733 thousand and Rs. 747,490 thousand due from the Government of Pakistan in respect of petroleum development levy and price differential on imported and local purchases respectively as current assets. The expected timing of the recoverability of these receivables and its consequential impact on their classification in the balance sheet cannot presently be determined. Note 9.4 to the interim financial information. The Company considers the aggregate amount of Rs.1,961,211 thousand, receivable from the Government of Pakistan in respect of price differential on imported motor gasoline as a good debt for reasons given in the note. The ultimate outcome of the matter cannot presently be determined.

A.F. Ferguson & Co. Chartered Accountants Karachi: August 17, 2011 Engagement Partner: Sohail Hasan
03
Shell Pakistan Limited

Condensed Interim Balance Sheet


as at June 30, 2011 (Unaudited) (Audited) June 30, December 31, 2011 2010 (Rupees `000) Note ASSETS Non-Current Assets Property, plant and equipment Intangible assets Long term investments Long term loans and advances Long term deposits and prepayments Long term debtors Deferred taxation - net Current Assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Cash and bank balances TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Share capital Reserves Unappropriated profit LIABILITIES Non-Current Liabilities Liabilities against assets subject to finance lease Asset retirement obligation Current Liabilities Trade and other payables Accrued mark-up Current maturity of liabilities against assets subject to finance lease Short-term running finances utilised under mark-up arrangements - secured Short term loans - secured Taxation TOTAL EQUITY AND LIABILITIES Contingencies and commitments 10 684,880 2,096,050 5,978,400 8,759,330 684,880 2,096,050 5,119,105 7,900,035

5 6

6,490,869 1,500,406 2,865,271 80,464 201,731 10,188 1,468,026 12,616,955 15,973 18,808,598 2,493,329 60,823 222,887 14,341,995 1,765,402 37,709,007 50,325,962

6,502,773 1,679,707 2,547,853 81,960 190,666 11,442 1,993,350 13,007,751 14,502 12,348,438 2,013,358 76,187 305,384 9,686,866 1,045,025 25,489,760 38,497,511

995 183,930 184,925 22,320,985 162,318 3,013 2,832,484 15,790,000 272,907 41,381,707 50,325,962

2,662 187,104 189,766 19,936,550 86,350 15,550 1,586,438 8,400,000 382,822 30,407,710 38,497,511

The annexed notes 1 to 16 form an integral part of this condensed interim financial information. Sarim Sheikh Chairman & Chief Executive
Shell Pakistan Limited

Badaruddin F. Vellani Director

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Shell Pakistan Limited

Quarterly and Six Monthly Report June

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Condensed Interim Statement of Comprehensive Income (Unaudited)


for the half year ended June 30, 2011 Half year ended Note June 30, 2011 June 30, 2010 Quarter ended June 30, 2011 June 30, 2010

(Rupees `000)
Gross Sales Non-fuel retail - Others Other revenue 130,417,765 246,258 130,664,023 (14,346,098) 116,317,925 (108,759,087) 7,558,838 (1,908,327) (1,897,588) 3,752,923 (612,861) 3,140,062 108,765 3,248,827 (895,091) 2,353,736 317,418 2,671,154 (1,263,955) 1,407,199 1,407,199 20.55 102,015,257 1,255 205,671 102,222,183 (12,070,457) 90,151,726 (84,422,177) 5,729,549 (1,787,802) (1,952,339) 1,989,408 (340,338) 1,649,070 387,206 2,036,276 (568,983) 1,467,293 295,141 1,762,434 (1,042,224) 720,210 720,210 10.52 64,795,441 130,552 64,925,993 (7,199,150) 57,726,843 (53,959,829) 3,767,014 (735,094) (1,005,663) 2,026,257 (306,818) 1,719,439 55,886 1,775,325 (520,892) 1,254,433 139,699 1,394,132 (745,333) 648,799 648,799 9.47 53,509,344 101,833 53,611,177 (6,311,299) 47,299,878 (44,059,720) 3,240,158 (1,106,719) (887,998) 1,245,441 (241,947) 1,003,494 115,550 1,119,044 (305,513) 813,531 201,865 1,015,396 (697,223) 318,173 318,173 4.65

Sales tax Net revenue Cost of products sold Gross profit Distribution and marketing expenses Administrative expenses

Other operating expenses

Other operating income Operating profit Finance costs

Share of profit of associate - net of tax Profit before taxation Taxation Profit for the period Other comprehensive income Total comprehensive income for the period Earnings per share (Rupees)

11

The annexed notes 1 to 16 form an integral part of this condensed interim financial information.

Sarim Sheikh Chairman & Chief Executive

Badaruddin F. Vellani Director


05
Shell Pakistan Limited

Condensed Interim Statement of Cash Flows (Unaudited)


for the half year ended June 30, 2011 Half year ended Note June 30, 2011 June 30, 2010

(Rupees `000) CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Finance costs paid Taxes paid Long term loans and advances Long term deposits and prepayments Mark up received on short term deposits Long term debtors Net cash (used in) / generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Fixed capital expenditure Proceeds from disposal of property, plant and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Repayment of liability under finance lease Net cash used in financing activities Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period (521,902) (14,204) (536,106) (7,915,669) (8,941,413) (16,857,082) (1,701,666) (22,816) (1,724,482) 346,838 (5,083,378) (4,736,540) (561,097) 27,869 (533,228) (148,351) 7,808 (140,543) 12 (5,274,689) (728,027) (848,546) 1,496 (11,065) 13,242 1,254 (6,846,335) 3,380,961 (554,066) (699,713) 12,284 33,698 17,250 21,449 2,211,863

The annexed notes 1 to 16 form an integral part of this condensed interim financial information.

Sarim Sheikh Chairman & Chief Executive


Shell Pakistan Limited

Badaruddin F. Vellani Director

06

Shell Pakistan Limited

Quarterly and Six Monthly Report June

11

Condensed Interim Statement of Changes in Equity (Unaudited)


for the half year ended June 30, 2011
Share capital Capital reserves Share premium General revenue Unappropriated profit Total

(Rupees 000)

Balance as at January 1, 2010 (audited) Final dividend for the year ended December 31, 2009 at Rs. 25 per share Total comprehensive income for the half year ended June 30, 2010 Balance as at June 30, 2010 (unaudited) Interim dividend for the year ended December 31, 2010 at Rs. 4 per share Total comprehensive income for the half year ended December 31, 2010 Balance as at December 31, 2010 (audited) Final dividend for the year ended December 31, 2010 at Rs. 8 per share Total comprehensive income for the half year ended June 30, 2011 Balance as at June 30, 2011 (unaudited)

684,880

1,889,048

207,002

5,489,673

8,270,603

(1,712,198)

(1,712,198)

684,880

1,889,048

207,002

720,210 4,497,685

720,210 7,278,615

(273,952)

(273,952)

684,880

1,889,048

207,002

895,372 5,119,105

895,372 7,900,035

(547,904)

(547,904)

684,880

1,889,048

207,002

1,407,199 5,978,400

1,407,199 8,759,330

The annexed notes 1 to 16 form an integral part of this condensed interim financial information.

Sarim Sheikh Chairman & Chief Executive

Badaruddin F. Vellani Director


07
Shell Pakistan Limited

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
1. 1.1 THE COMPANY AND ITS OPERATIONS Shell Pakistan Limited (the Company) is a limited liability company incorporated in Pakistan and is listed on the Karachi and Lahore Stock Exchanges. The registered office of the Company is located at Shell House, 6, Ch. Khaliquzzaman Road, Karachi-75530, Pakistan. The Company markets petroleum products and compressed natural gas. It also blends and markets various kinds of lubricating oils. BASIS OF PREPARATION This condensed interim financial information of the Company for the half year ended June 30, 2011 is unaudited and has been prepared in accordance with the requirements of the International Accounting Standard 34 - 'Interim Financial Reporting' and provisions of and directives issued under the Companies Ordinance, 1984 (the Ordinance). In case where the requirements differ, the provisions of or directives issued under the Ordinance have been followed. This condensed interim financial information has, however, been subjected to limited scope review by the auditors, as required by the Code of Corporate Governance. This condensed interim financial information is being submitted to the shareholders in accordance with section 245 of the Ordinance and should be read in conjunction with the audited annual financial statements of the Company for the year ended December 31, 2010. ACCOUNTING POLICIES The accounting policies and the methods of computation adopted in the preparation of this condensed interim financial information are the same as those applied in the preparation of audited annual financial statements of the Company for the year ended December 31, 2010 except for the changes resulting from initial application of standards, amendments or interpretations to existing standards as stated in note 3.2 which though adopted do not presently have any impact on this condensed interim financial information but may effect the accounting for future transactions and events. The following new standards and amendments and interpretations to existing standards are mandatory for the financial year beginning on January 1, 2011: 3.3 IFRS 1 (Amendment) 'First time adoption'; IAS 24 (Revised) 'Related party transactions'; IAS 32 (Amendment) 'Financial instruments: Presentation on classification of rights issues'; IFRIC 14 (Amendment) 'Pre-payments of a minimum funding requirement'; IFRIC 19 (Interpretation) 'Extinguishing financial liabilities with equity instruments'; and Number of other amendments in other IFRS and IAS which were part of the International Accounting Standard Board's (IASB's) annual improvement project, published in May 2010.

1.2 2. 2.1

2.2

3. 3.1

3.2

The following new standards and amendments have been issued but are not effective for the financial year beginning January 1, 2011 and have not been early adopted by the Company: IFRS 7 (Amendment), 'Financial instruments; IFRS 9, 'Financial Instruments: Disclosures'; IFRS 12, 'Disclosure of interests in other entities'; IFRS 13, 'Fair value measurement'; IAS 1 (Amendment), 'Presentation of financial statements'; IAS 12 (Amendment), 'Income taxes'; IAS 19 (Revised), 'Employee benefits'; and IAS 28 (Revised), 'Investment in associates and joint ventures'.

Shell Pakistan Limited

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Shell Pakistan Limited

Quarterly and Six Monthly Report June

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Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
3.4 4. 4.1 There are number of new standards and amendments and interpretations to published standards that are not yet effective, and are also not relevant to the Company and therefore have not been presented here. ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of this condensed interim financial information in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances. However actual results may differ from these estimates. During the preparation of this condensed interim financial information, the significant judgments made by management in applying the Company's accounting policies and the key sources of estimation and uncertainty were the same as those that were applied to the annual audited financial statements for the year ended December 31, 2010. (Unaudited) June 30, 2011 (Audited) December 31, 2010

4.2

(Rupees `000) 5. PROPERTY, PLANT AND EQUIPMENT Operating assets, at net book value - notes 5.1 and 5.2 Capital work-in-progress - note 5.3 Less: Provision for impairment 5,883,621 689,819 6,573,440 (82,571) 6,490,869 5.1 Additions to operating assets during the period / year were as follows: Owned assets Leasehold land Buildings on freehold land Buildings on leasehold land Tanks and pipelines Plant and machinery Air conditioning plant Dispensing pumps Rolling stock and vehicles Electrical, mechanical and fire fighting equipment Furniture, office equipment and other assets Computer auxiliaries Leased assets Vehicles 5,985 55,937 2,170 26,498 18,865 101,770 435 3,922 215,582 3,967 7,597 209,605 71,989 162,969 1,534 22,095 19,535 92,217 227,787 16,658 40,794 876,747 6,202,640 344,304 6,546,944 (44,171) 6,502,773

09

Shell Pakistan Limited

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
5.2 The following assets were disposed / written off during the period / year: Cost Accumulated depreciation (Rupees `000) June 30, 2011 (unaudited) Owned assets Building on leasehold land Tanks and pipelines Plant and machinery Dispensing pumps Rolling stock and vehicles Electrical, mechanical and fire fighting equipment Furniture, office equipment and other assets Computer auxiliaries Leased assets Vehicles 16,024 352,333 December 31, 2010 (audited) 472,072 11,538 190,961 224,451 (Unaudited) June 30, 2011 4,486 161,372 247,621 (Audited) December 31, 2010 114,739 44,713 11,401 73,781 51,063 1,727 38,844 41 49,845 17,183 437 53,083 21,903 1,651 35,280 41 64,894 27,530 10,964 20,698 29,160 76 3,564 Net book value

(Rupees `000) 5.3 Capital work-in-progress comprise the following: Buildings on leasehold land Tanks and pipelines Plant and machinery Dispensing pumps Rolling stock and vehicles Electrical, mechanical and fire fighting equipments Furniture, office equipment and other assets Capital stores and spares 372,613 215,417 62,749 2,086 965 35,203 786 689,819 6. LONG TERM INVESTMENTS This includes investment in an associate Pak Arab Pipeline Company Limited (PAPCO), which is carried under equity method of accounting amounting to Rs. 2,860,271 thousand (December 31, 2010: Rs. 2,542,853 thousand) as follows: 50,252 126,333 7,545 2,091 17,975 136,883 1,221 2,004 344,304

Shell Pakistan Limited

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Shell Pakistan Limited

Quarterly and Six Monthly Report June

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Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
(Unaudited) June 30, 2011 Movement of investment in associate Balance at the beginning of the period / year Share of profit Share of taxation Dividend received Balance at the end of the period / year 7. DEFERRED TAXATION This includes deferred income tax asset amounting to Rs.1,886,890 thousand (December 31, 2010: Rs. 2,438,707 thousand) recognised for tax losses available for carry forward to the extent that the realization of the related tax benefit through future taxable profits is probable. The aggregate unutilized tax losses as at June 30, 2011 amount to Rs. 5,719,861 thousand (December 31, 2010: Rs. 7,296,481 thousand) out of which deferred income tax asset has been recognised on tax losses amounting to Rs. 5,391,114 thousand (December 31, 2010: Rs. 6,967,734 thousand) based on projections of future taxable profits of the Company. 8. STOCK-IN-TRADE This includes finished product aggregating Rs. 4,316,737 thousand at cost (December 31, 2010: Rs. 1,441,913 thousand) which have been valued at their net realizable value amounting to Rs. 4,124,058 thousand (December 31, 2010: Rs. 1,426,142 thousand). 9. OTHER RECEIVABLES This includes receivables aggregating Rs. 5,220,245 thousand (December 31, 2010: Rs. 5,106,027 thousand) from the Government of Pakistan (GoP) on account of the following: 9.1 Petroleum development levy recoverable amounting to Rs. 2,215,811 thousand (December 31, 2010: Rs. 2,070,888 thousand) from the Federal Board of Revenue on account of export sales. The Company has not received any amount against this receivable during the period and is actively pursuing the matter with the Federal Board of Revenue. Price differential on imports and ex-refinery price amounting to Rs. 295,733 thousand (December 31, 2010: Rs. 295,733 thousand) on direct and retail sales during the period 1990-2002. Price differential claims receivable from the GoP amounting to Rs. 747,490 thousand (December 31, 2010: Rs. 747,490 thousand). From time to time the GoP agrees to subsidise the petroleum prices by restricting the increase in prices of various petroleum products in order to reduce the burden of rising oil prices on the end consumers. Price differential claim amounting to Rs. 1,961,211 thousand (December 31, 2010: Rs. 1,991,916 thousand) on account of import of motor gasoline by the Company, being the difference between their landed cost and exrefinery prices announced by Oil and Gas Regulatory Authority (OGRA). In 2007, the Company as well as other oil marketing companies were asked in a meeting chaired by Director General Oil to import motor gasoline to meet the increasing local demand. Accordingly, oil marketing companies approached the Ministry of Petroleum and Natural Resources (MoPNR) with a proposal for pricing mechanism whereby end consumer price of motor gasoline was proposed to be fixed at weighted average of ex-refinery (import parity) price and landed cost of the imported product. Although no response was received from the MoPNR, the Company alongwith another oil marketing company continued to import motor gasoline on behalf of the industry being confident that price differential on motor gasoline, will be settled as per previous practice representing the differential between ex-refinery and import cost at the time of filing of cargo with Customs, as imports were being made on MoPNR instructions.
Shell Pakistan Limited

(Audited) December 31, 2010

(Rupees `000)

2,542,853 477,573 (160,155) 317,418 2,860,271

2,307,806 916,887 (320,879) 596,008 (360,961) 2,542,853

9.2 9.3

9.4

11

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
In 2009, oil marketing companies approached the MoPNR requesting an expeditious settlement of these claims. Further, the Company along with other affected oil marketing companies also approached MoPNR through letter dated July 23, 2009 requesting for an early settlement of these claims. On October 2, 2009, MoPNR requested that an audited claim be submitted to allow further consideration and resolution of the matter. The Company has accordingly submitted audit reports thereafter and for claims till February 28, 2011. During the period, the Company has received an amount of Rs. 454,000 thousand from GoP in respect of these claims. The Company along with other oil marketing companies and Oil Companies Advisory Committee (OCAC) continues to follow up this matter with MoPNR and is confident of recovering this amount in full. The receivable represents the Company's share of differential claim on shared import cargoes of motor gasoline. 10. 10.1 CONTINGENCIES AND COMMITMENTS Contingencies The Sindh Finance Act 1994, prescribed the imposition of an infrastructure fee at the rate of 0.5% of the C&F value of all goods entering or leaving the province of Sindh via sea or air. The Company and several others challenged the levy in constitutional petitions before the High Court of Sindh. These petitions were dismissed as, during their pendency, the nature of the levy was changed by the Government of Sindh through an Ordinance. The Company and others therefore filed civil suits in the High Court of Sindh challenging the amended Ordinance. However, these suits were also dismissed in October 2003. All the plaintiffs preferred intra-court appeals against the dismissal. The intra-court appeals were decided by the High Court in September 2008 wherein it was held that the levy is valid and collectable only from December 12, 2006 onwards and not prior to this date. Being aggrieved by the said judgment, both the Company and the Government of Sindh filed separate appeals before the Supreme Court of Pakistan. During the period the Government of Sindh, unconditionally withdrew its appeals on the plea that the Sindh Assembly had legislated the Sindh Finance (Amendment) Act, 2009 levying infrastructure fee with retrospective effect from 1994. However the Supreme Court of Pakistan, in view of the new legislation, directed the Company and others to file fresh petitions to challenge the same before the High Court and set aside the earlier order of the High Court. The High Court on fresh petitions filed, passed an interim order directing that any bank guarantee / security furnished for consignments cleared upto December 27, 2006 are to be returned and for period thereafter guarantees or securities furnished for consignments cleared are to be encashed to the extent of 50% and the remaining balance is to be retained till the disposal of petitions. For future clearances the Company is required to clear the goods on paying of 50% of the fee amount involved and furnishing a guarantee / security for the balance amount. Subsequent to the orders of the High Court, the Company has reviewed its position and without acknowledging as debt now estimates the accumulated levy upto June 30, 2011 at Rs. 68,300 thousand (December 31, 2010: Rs. 53,300 thousand) based on demands raised by the authorities. However the eventual obligation on account of the aggregate cess, if any, cannot be determined presently because of the uncertainty involved in the extent of its application to the Company. For these reasons and based on legal advice obtained no provision has been made in this condensed interim financial information against the levy as the Companys management in any case expects a favourable outcome. 10.1.2 Taxation 10.1.2.1 During the period, the Company received orders for the tax years 2004 to 2007, 2009 and 2010 raising a demand of Rs. 294,233 thousand in respect of these years by holding the Company as an assessee in default for not withholding tax on rebates given to pump operators, dealers and non dealers on sales made to them during these years on the grounds that the rebates given were in the nature of prize for promotion of sales by the Company on which the Company failed to withhold tax as required under Section 156 of the Income Tax Ordinance 2001 (ITO 2001). Against this demand the Company, based on the advice of its tax consultant, has paid an amount of Rs. 179,309 thousand under the tax amnesty scheme announced by the FBR through SRO 647(I)/2011 dated June 25, 2011 to avoid default surcharge and penalties. The payments made against the demand have been included in other receivables as reflected on the balance sheet in the condensed interim financial information. Further, the Company intends to file an appeal against these demands with the Commissioner Inland Revenue (CIR) (Appeals).
Shell Pakistan Limited

10.1.1 Infrastructure fee

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Shell Pakistan Limited

Quarterly and Six Monthly Report June

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Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
However, the Company, based on the merits of the case and on the advice of its tax consultant, out of the above demand has provided an amount of Rs. 19,854 thousand in the condensed interim financial information, representing its best estimate of the liability @ 10% under Section 156 A on rebates to pump operators. Under Section 156 A of the ITO 2001, tax is required to be withheld at 10% of the amount of any commission or discount allowed on petroleum products sold to pump operators. The management is confident that the eventual outcome of the matter will be in its favour, accordingly no provision has been made against the remaining balance of Rs. 159,455 thousand. For tax year 2008 the Company received a show cause notice on similar grounds. The Company has filed a constitutional petition with the High Court for this year and has obtained a stay from further proceedings by depositing an amount of Rs. 16,388 thousand and furnishing a guarantee of Rs. 7,867 thousand. The payments made against the demand have been included in taxation as reflected on the balance sheet in the condensed interim financial information. 10.1.2.2 During the period, the Company received a demand from tax authorities in respect of tax year 2008 amounting to Rs. 735,109 thousand. The demand principally arose due to addition made by assessing officer in respect of allocation of common expenses and taxing the reversal of provision for impairment in trade and other receivables. Further, assessing officer has also disallowed the credit for minimum tax amounting to Rs. 482,685 thousand paid in earlier year and set-off against tax liability for the tax year 2008. The Company in response to the demands has deposited an amount of Rs. 120,000 thousand and has filed an appeal with the Commissioner Inland Revenue (CIR) (Appeals) where the Company, based on the advice of its tax consultant expects a favourable outcome and as such has not made any provision there against. The payments made against the demand have been included in other receivables as reflected on the balance sheet in the condensed financial information. 10.1.3 PARCO pipeline fill The MoPNR has made a claim relating to the loan arranged by the Government of Pakistan to the Company to finance the initial fill of the Pak-Arab Refinery Limited (PARCO) Pipeline. MoPNR has calculated the Company's liability by applying the price prevailing on August 11, 2000 to the quantity of fuel supplied at the time of initial fill. The Company maintains that its liability is limited only to the extent of Rs. 78,164 thousand (December 31, 2009: Rs. 78,164 thousand) which is based on the price prevailing at the time of the initial fill and has been fully paid in March 2007. The claim, if calculated on August 11, 2000 price as indicated by MoPNR, would amount to Rs. 294,000 thousand. Based on legal advice obtained, the management is confident that its liability in this respect amounted to Rs. 78,164 thousand which has been paid and consequently no provision has been made for the additional demand raised by MoPNR. 10.1.4 Others The aggregate amount of other claims against the Company not acknowledged as debt as at June 30, 2011 amounting to approximately Rs. 2,335,010 thousand (December 31, 2010: Rs. 1,921,096 thousand). This includes claims by refineries, amounting to Rs. 996,554 thousand (December 31, 2010: Rs. 996,554 thousand) in respect of delayed payment charges. The Company does not acknowledge the claim for late payment charges as the delayed payment to refineries arose due to the liquidity crisis faced by oil marketing companies over the past few years caused by non-settlement of price differential claims by the Government of Pakistan. 10.2 Commitments

10.2.1 Capital expenditure contracted for but not incurred as at June 30, 2011 amounted to approximately Rs. 359,874 thousand (December 31, 2010: Rs.196,710 thousand). 10.2.2 Commitments for rentals of assets under operating lease agreements as at June 30, 2011 amounted to Rs. 2,773,336 thousand (December 31, 2010: Rs. 2,361,356 thousand) payable as follows:

13

Shell Pakistan Limited

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
(Unaudited) June 30, 2011 (Audited) December 31, 2010

(Rupees `000) Not later than one year Later than one year and not later than five years Later than five years 148,031 619,249 2,006,056 2,773,336 147,548 584,816 1,628,992 2,361,356

10.2.3 Post-dated cheques have been deposited with the Collector of Customs Port Qasim and Karachi Port Trust in accordance with the Customs' Act, 1969 as an indemnity to adequately discharge the liability for the duties and taxes leviable on imports, as required under the Finance Act 2005. As at June 30, 2011, the value of these cheques amounted to Rs. 6,451,303 thousand (December 31, 2010: Rs. 6,657,745 thousand). The maturity dates of these cheques extend to December 15, 2011 (December 31, 2010: June 27, 2011). 10.2.4 Letters of credit and bank guarantees outstanding as at June 30, 2011 amount to Rs. 8,844,024 thousand (December 31, 2010: Rs. 4,220,825 thousand). (Unaudited) Half year ended June 30, 2011 11. TAXATION Current - for the period - note 11.1 - for prior periods Deferred 711,830 26,801 525,324 1,263,955 11.1 819,954 222,270 1,042,224 343,208 26,801 375,324 745,333 542,032 155,191 697,223 Quarter ended June 30, 2010 June 30, June 30, 2010 2011 (Rupees `000)

This includes minimum tax @ 0.5% (June 30, 2010: @ 1%) amounting to Rs. 435,133 thousand (June 30, 2010: Rs. 696,541 thousand) under section 113 of the Income Tax Ordinance, 2001. The minimum tax paid is adjustable against the tax liability of succeeding five years. The Company however, on prudence, has not recognised the tax asset in view of the prior year's unutilized tax losses available for set off against future taxable income aggregating Rs. 5,719,861 thousand (December 31, 2010: Rs. 7,296,481 thousand).

Shell Pakistan Limited

14

Shell Pakistan Limited

Quarterly and Six Monthly Report June

11

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
Unaudited Half year ended June 30, June 30, 2011 2010 (Rupees `000) 12. CASH GENERATED FROM OPERATIONS Profit before taxation Adjustment for non-cash charges and other items: Depreciation and amortisation charge Accretion expense in respect of asset retirement obligation Reversal of liability in respect of asset retirement obligation - net Provision for impairment of trade debts Reversal of provision for impairment of trade debts Trade debts written off Operating assets written off Gain on disposal of property, plant and equipment Provision for impairment of operating assets Share of profit of associate Mark-up on short-term deposits Mark-up on short-term running finances and loans Reversal of provision for stock-in-trade - net Working capital changes - note 12.1 2,671,154 552,530 5,287 (8,461) 9,293 (32,474) 3,988 124,397 (6,650) 38,400 (317,418) (13,959) 803,995 (3,539) (9,101,232) (5,274,689) 12.1 Working capital changes Decrease / (increase) in current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables (1,471) (6,456,622) (460,778) 15,364 82,497 (4,654,412) (11,475,422) Increase in current liabilities Trade and other payables 2,374,190 (9,101,232) 389 (779,229) (281,563) (7,323) 78,932 (558,519) (1,547,313) 2,568,087 1,020,774 1,762,434 432,376 (5,012) 23,754 (66,081) 74,110 (767) (295,141) (20,059) 465,728 (11,155) 1,020,774 3,380,961

15

Shell Pakistan Limited

Notes to the Condensed Interim Financial Information (Unaudited)


for the half year ended June 30, 2011
13. RELATED PARTY TRANSACTIONS Significant transactions entered during the period by the Company with related parties are as follows: Unaudited Half year ended Nature of relationship Associate Pak Arab Pipeline Company Ltd. Contribution to staff retirement benefit funds Pipeline charges Pension fund Gratuity fund Provident fund Remuneration Purchases Sales Fee for technical services Trade marks and manifestations license fee charged Computer expenses charged (Global Infrastructure Desktop charges) ERP Implementation charges Expenses recovered from related parties Other expenses charged by related parties Legal charges 379,472 37,717 9,033 14,583 57,712 51,711,224 832,113 588,799 85,856 67,087 95,119 197,538 99 341,295 40,099 9,526 15,643 49,996 30,506,188 995,115 851,952 68,617 67,237 1,270,668 183,481 48,721 38 Nature of transactions Note June 30, June 30, 2011 2010 (Rupees `000)

Key management personnel Other related parties

13.1 13.2 13.2 13.3 13.3

13.1

Technical services include advice and assistance to the Company in its operations. The fee for these services has been determined on the basis of agreements between the Company and a related Shell Group Company based on an agreed methodology. Trade mark and manifestations license fee and Global Infrastructure Desktop charges are based on the agreements entered into by the Company with the Shell Group Companies. Expenses recovered from / charged by related parties are based on actuals charged by or recovered from the related parties. CORRESPONDING FIGURES In order to comply with the requirements of International Accounting Standard 34 - 'Interim Financial Reporting', corresponding figures in the condensed interim balance sheet comprise of balances as per the annual audited financial statements of the Company for the year ended December 31, 2010 and the corresponding figures in the condensed interim statement of comprehensive income, condensed interim statement of changes in equity and condensed interim statement of cash flows comprise of balances of comparable period as per the condensed interim financial information of the Company for the half year ended June 30, 2010. GENERAL Figures have been rounded off to the nearest thousand. DATE OF AUTHORISATION This condensed interim financial information was authorized for issue on August 17, 2011 by the Board of Directors of the Company.

13.2 13.3 14. 14.1

15. 16.

Sarim Sheikh Chairman & Chief Executive


Shell Pakistan Limited

Badaruddin F. Vellani Director

16